Mental Health Parity Act Shifts Practice of Imposing Mandates from the States to the Federal Level; Likely to Raise Insurance Premiums

by David Hogberg, Ph.D. and Paul Gessing

Outside of the Iraq War, the debate over health care reform is one of the most contentious issues in politics today. With ongoing debate in Washington and a flurry of activity in the states, the need to make health care more affordable is a mantra being adopted by politicians of both parties.

Unfortunately, despite the high-minded rhetoric, political intervention more often results in higher medical costs. One of New Mexico's own senators, Republican Senator Pete Domenici - in conjunction with Senators Mike Enzi (R-WY) and Ted Kennedy (D-MA) - is now leading an effort that would ultimately drive up the costs of health insurance and may even inflict harm on the very people the Senators are trying to help.

The legislation, which has already passed out of one Senate committee, is known as the "Mental Health Parity Act."1

Although, Domenici's desire to help those with mental illness is noble, it has led him to support a proposal that inevitably, if inadvertently, will harm both the mentally ill and the uninsured.

This bill would require that health insurance policies that provide coverage for mental illness must provide it in the same way that they provide benefits for other conditions. Thus, if the co-pay to see a family doctor is $20, then the co-pay to see a psychiatrist must also be $20.

In a free market, the decision of how to cover mental health benefits is left to the insurer and the insured. A mandate to require that mental health coverage be given parity eliminates that freedom. Furthermore, mental health parity is one of the most costly of benefit mandates. Using actuarial data, the Council for Affordable Health Insurance, an insurance industry group, estimates that it can add between five and ten percent to the cost of a health insurance policy.2

Few of the likely consequences of imposing a mental health parity mandate are good for employees. Forcing insurance programs to cover mental health the same way they cover physical illnesses and conditions will result in more expensive health insurance. That means more businesses will increase their insurance premiums or drop their insurance altogether, resulting in an increase in the number of uninsured. Another route that businesses might pursue is simply dropping their mental illness coverage from their insurance policies, meaning that employees will have less access to mental health benefits.

A reading of the Mental Health Parity Act suggests that Domenici recognizes that it will lead to higher costs. The bill tries to shield small businesses from rising health insurance costs by exempting any business with fewer than fifty employees. It also exempts any business whose health insurance costs rise more than 2% due to the mental health parity mandate.3

Attempts to ask any of the three Senators what they thought about the cost of the bill proved fruitless. All three Senate offices responded to our calls, made over a two-week period, by saying the staff members who could address our questions were out of the office.

Thus far, only four benefit mandates exist at federal level. Unfortunately, benefit mandates are extremely common among the states, as most states have dozens, mandating everything from hair prostheses to massage therapists. New Mexico, for example, has 45 such mandates.4

Health care mandates at the state level have become such a problem that one of the most promising - albeit unsuccessful - efforts to reform health care in recent years was led by then-House Speaker Dennis Hastert (R-IL) and Rep. John Shadegg (R-AZ), both of whom wanted to change federal law to allow individuals to purchase insurance across state lines.5 This effort essentially would have forced insurance companies to compete across state lines. That, in turn, would have pressured states to tailor their health care regulations in order to compete against each other.

Aside from the inherent cost, what makes federal mental health parity legislation so troubling is that it could start a trend that shifts mandates from the state to the federal level, thus closing off a potential route to reform and future cost reductions. Instead of raising costs by creating new mandates, Domenici, Enzi, and Kennedy and others should be working to cut health care costs by allowing consumers to purchase health insurance - including mental health insurance - across state lines.

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David Hogberg is a senior policy analyst for the National Center for Public Policy Research of Washington, D.C. and Paul Gessing is president of the Rio Grande Foundation of Albuquerque, N.M.

Footnotes:

1. S. 558, "To provide parity between health insurance coverage of mental health benefits and benefits for medical and surgical services," 110th Congress, 1st Session, March 27, 2007, found using the search function at http://thomas.loc.gov/, as of April 2, 2007.

5. H. R. 2355, "To amend the Public Health Service Act to provide for cooperative governing of individual health insurance coverage offered in interstate commerce," 109th Congress, 1st Session, March 12, 2005, found using the search function at http://thomas.loc.gov/home/multicongress/multicongress.html as of April 2, 2007.